Net Operating Income (NOI) Calculator
Calculate the net operating income for any rental property or commercial real estate investment. Enter rental income and all operating expenses to get NOI, effective gross income, expense ratio, and cap rate — free, private, no sign-up required.
| Expense Item | Annual Amount | % of EGI |
|---|
What Is Net Operating Income (NOI) in Real Estate?
Net Operating Income (NOI) is the annual income a real estate investment generates after deducting all operating expenses, but before accounting for mortgage payments or income taxes. It is the single most important metric in commercial and investment real estate — used to calculate cap rates, determine DSCR loan qualification, and estimate property value. As defined by the IRS Schedule E, operating income excludes debt service; mortgage interest is tracked separately as a financing cost, not an operating expense.
The NOI formula is: NOI = Effective Gross Income (EGI) − Total Operating Expenses. EGI itself is: Gross Potential Income (monthly rent × 12) − Vacancy Loss + Other Income. Operating expenses include property taxes, insurance, management fees, repairs, capital expenditure reserves, utilities paid by the owner, and HOA dues — but explicitly exclude mortgage principal and interest, depreciation, and income taxes.
What Expenses Are Excluded from NOI?
Understanding what to exclude from NOI is as important as what to include. NOI deliberately excludes all financing costs — mortgage principal, interest payments, and loan fees. This allows investors to compare properties on an apples-to-apples basis regardless of how they are financed. A property bought with cash and one bought with 80% leverage have the same NOI; only the cash flow differs.
NOI also excludes depreciation and amortization, which are accounting entries on the IRS Schedule E and do not represent cash expenses. Income taxes are excluded for the same reason — they are an owner-level calculation, not a property-level one. Capital expenditures (CapEx) for major improvements are debated: purists exclude them since they are capitalized on the balance sheet, but most practical investors include an annual CapEx reserve in NOI to reflect the true cost of ownership. This calculator includes a CapEx reserves field because it produces a more accurate picture for long-term holders. Per Appraisal Institute standards, the property's NOI used in capitalization analysis should reflect typical, stabilized operations.
How NOI Drives Cap Rate and Property Valuation
Cap rate (capitalization rate) is the most widely used valuation multiple in commercial real estate: Cap Rate = NOI ÷ Property Value. Rearranging this formula gives the income approach to valuation: Property Value = NOI ÷ Cap Rate. This means that every dollar of NOI you add — through rent increases or expense reduction — directly increases the property's market value.
For example, if the market cap rate in your submarket is 6% and you increase NOI by $3,000 per year, you have added $50,000 in property value ($3,000 ÷ 0.06 = $50,000). This is the "force appreciation" strategy used by active real estate investors: increase income, reduce expenses, and refinance at the higher appraised value. NOI also feeds directly into DSCR calculations — lenders divide NOI by annual debt service to determine whether a property's income justifies the loan. Last updated: May 2026.
What Is a Good Operating Expense Ratio?
The Operating Expense Ratio (OER) is Total Operating Expenses ÷ Effective Gross Income × 100. A well-managed single-family rental typically shows an OER of 35–45%. Multi-family properties commonly run 40–55% due to higher management and maintenance complexity. Commercial properties vary widely — triple-net (NNN) leases push expenses to tenants, producing OERs of 10–20%, while full-service office buildings may show 60–70%. An OER above 70% on a residential property signals either under-market rent or poorly controlled expenses and warrants immediate investigation. The expense ratio shown in this calculator gives you an instant read on your property's operating efficiency relative to income.